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Brazil Keeps a Grip on Bolivia's Natural Gas Industry

by Franz Chávez (la paz)

Tuesday, November 30, 2010

Inter Press Service

Brazil's state-owned oil company Petrobrás maintains a solid and vigorous presence in natural gas production within Bolivian territory, even with the nationalisation of petroleum and gas in 2006 led by Bolivia's left-wing President Evo Morales.

The story begins with Bolivia and Brazil's 1992 signing of a preliminary purchase-sale contract for natural gas, marking the start of a shift of Bolivia's power in the sector to Petrobrás and to other transnational corporations interested in the Andean nation's huge fossil fuel reserves.

In 1995, Brazil set up its offices in Bolivia, exactly a year before the so-called 'capitalisation process' of the state-owned oil company YPFB (Yacimientos Petrolíferos Fiscales Bolivianos). This meant the privatisation of all its operational activities, in keeping with the neoliberal policies pursued by then- president of Bolivia, Gonzalo Sánchez de Lozada.

Petrobrás (Petróleo Brasileiro) advanced ahead of the other foreign companies and obtained a highly favourable deal for exploration, exploitation, transport, refinery and export -- all previously the purview of YPFB.

Four years into the nationalisation of oil and gas under Morales (now in his second presidential term), experts are casting doubt over the depth and effectiveness of the changes made in this industry, especially when it comes to Bolivia's giant neighbour Brazil.

'There wasn't a nationalisation of petroleum, but rather a migration of petroleum contracts,' which upheld Brazil's exceptional conditions for natural gas production that were granted back in 1996, journalist Mirko Orgaz, who specialises in energy issues, told IPS.

Carlos Arze, energy expert with the non-governmental Centre for Labour and Agricultural Development Studies, agrees: 'The nationalisation of hydrocarbons was not that, in the sense that it did not recuperate the state's capacity to direct and control the activity in this economically strategic sector.'

Following the nationalisation announced May 1, 2006, President Morales signed new contracts with foreign oil companies on Oct. 28 that year, increasing the taxes on production from 18 to 80 percent.

Arze told IPS that 'as representative of Brazilian interests' Petrobrás was a key player in the 1996 'neoliberal reforms' in Bolivia's oil sector.

The Brazilian presence began, according to Arze, 'with the signing of the contract for exporting natural gas to Brazil, and the introduction of the shared-risk contracts under national law to permit the privatisation of energy resources and the dominant presence of foreign capital.'

In the first quarter of 2010, Bolivia sold 1.7 billion dollars in natural gas to Brazil -- equal to one-tenth of the Andean nation's gross domestic product (GDP). In the same period, Argentina purchased 362 million dollars' worth of the fuel.

Despite the increased tax, Petrobrás 'adjusted to the new situation because it wouldn't be rational to abandon a billion-dollar deal that showed great prospects due to the extraordinary increase in commodity prices,' commented Arze.

'Also explaining the decision to remain in the country were the energy needs of Brazil's rapidly accelerating economy and the geopolitical strategy that the Brazilian elite is deploying in South America,' he added.

Orgaz's interpretation is that 'because nothing has changed (in the conditions of natural gas exploitation), Brazil announced that it wants to extend the purchase-sale contract for 20 years and double the volumes,' which currently reach 30 million cubic metres per day.

Petrobrás's strong role in the Bolivian petroleum sector is evident in its 10- percent control over the oil fields in this country, equivalent to 606,490 hectares, according to Arze's studies.

By 2008, Petrobrás was responsible for 61.5 percent of Bolivia's oil and natural gas production, up from 56.7 percent in 2004.

As for the fuel's transport through domestic pipelines, the Brazilian entity manages just over 12 percent, about the same as it did prior to nationalisation, according to Arze's figures.

The expert also noted that the refineries, of which Petrobrás had controlled 93.6 percent, were then sold to Bolivia.

The Bolivian economy was shaken up in September by a preliminary study from the U.S. consultancy Ryder Scott Company. It reported that Bolivia's proven natural gas reserves, which were 15 trillion cubic feet (TCF) in 2005, now stand at 8.3 TCF, casting doubt over sales contracts with Argentina and Brazil.

YPFB president Carlos Villegas asserted that the reserves reach 12.8 TCF, but said he is still waiting for the final report from Ryder Scott.

Orgaz pointed out another disadvantage for Bolivia in the natural gas deal: Brazil pays about 5.62 dollars per thousand cubic feet, a price that in his opinion should be doubled if applying a formula that accounts for the fuel's energy value and its environmental benefits over more polluting fuels.

His calculations, which take the international price for a barrel of petroleum (86 dollars) as a reference point, suggest that the Brazilian giant should be paying 14 dollars per thousand cubic feet.

According to Orgaz, Brazil sells that same volume for 23 dollars, 'an excellent deal for Petrobrás, to the detriment of YPFB and the Bolivian government.'

In this context, the recent announcement of the industrialisation of Bolivian natural gas at two plants located in Brazil creates ' a difficult hurdle for saving Bolivia's plan to build a urea and ammonia plant, due to the restrictions, or at least the competition, by the Brazilian market,' said Arze.

Arze and Orgaz both question the Morales administration's delays in decision-making, and anticipate frustration of the public demands that date back to the 2003 rebellion, which ended with the resignation of President Sánchez de Lozada (1993-1997 and 2002-2003) and the so-called 'natural gas war,' which left 60 civilians dead.

Brazil would face no legal obstacle to industrialise Bolivian natural gas, according to Arze, while Orgaz laments that the Bolivian government is not making an effort to transform it into some type of ecological diesel (free of carcinogenic sulphur), with 1,000 cubic feet selling at 13 dollars -- twice the price paid today by Brazil.

Both analysts note that Brazil holds a highly influential position over Bolivian politics, and cite strategic projects like the construction of a highway and electric railway that are to unite the Pacific and Atlantic coasts via Bolivia, and the interest in exploiting lithium in Salar de Uyuni, in the department of Potosí, southeast of La Paz.